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Core issues hindering growth of India’s power sector

Prakash Nayak ,  Thursday, December 20, 2012, 11:50 Hrs  [IST]

Prakash NayakThe country's economic growth depends purely on the growth of power sector; stronger the growth in power sector stronger is the growth in the economy. Prakash Nayak, Chairman—Power Panel, Institution of Engineering and Technology and also Director—Microgrid, India Smart Grid Forum, explains the core issues hindering the growth of the power sector in India.

The country's economic growth depends purely on the growth of power sector; stronger the growth in power sector stronger is the growth in the economy. The problems in the power sector are multifarious, relating to fuel shortages, lack of adequate finance, poor financial health of distribution utilities, absence of cost-reflective tariffs and peak demand shortages and non-availability of competent technical, skilled and project management resources. In addition, land acquisition right of way and environmental clearances are the added hindrances to the investments and project execution.

Fuel crisis: Fuel availability, mainly coal and gas, has emerged as a severe bottleneck for power generators. Though we have large coal reserves, coal production in the country is growing only at the rate of 5 per cent when the power sector growth of 10-15 per cent in the last Five-Year Plan, thus leading to acute coal shortages. Availability of good quality coal- during the current financial year 2011- 12, the anticipated gap between the requirement and availability of domestic coal was estimated around 54 million tonnes. Out of 54 million tonnes, 35 million tonnes of coal was to be met through import of coal. The availability of natural gas has been a concern for many years and liquefied natural gas is thrice as expensive.

T&D losses: Energy generated in the supply chain is lost to the extent of 30 to 40 per cent. Though it varies from state to state and some states are better, it is in no way comparable to world's best in South Korea where it is close to 4 per cent. What is also worrying is billing inefficiency on top of it. This is one reason the state utilities are becoming financially unviable and are deteriorating and not able to support the investment in both capacity expansion and operational improvement. The massive black out in July this year is an early warning to all concerned, we need better systems and operation. The requirement and complexity and challenges in the Indian power sector cannot be compared with that in the West. Thus what is needed a solution from within and we have enough knowledge experts and thinktanks in India.

IET CoalFinancial status: The gap between the power purchase costs and the power tariffs has severely constrained the finances of state power utilities with net losses estimated at around 88,170 crore in 2012-13 (Thirteenth Finance Commission Report) and close to 1 per cent of India's GDP is probably the most critical challenge faced by the sector. The losses on account of outstanding loans, low tariffs, rising power purchase costs and subsidizing power and also AT&C losses thus making them economically not viable. Most of the banks are reaching their power sector exposure limits. Though there is permission to invest 100 per cent equity, foreign investors are taking a cautious approach and are deterred by the complexities of the power sector. Thus the funding gap in the current plan period alone estimated at 4 trillion financing has become constrained for the sector. This involves distribution and transmission.

Cash losses booked by various state distribution companies have increased significantly over the last few years, posing a risk of payment delays and/or defaults to the power producers. Investors find comfort in the fact that in several states, a significant portion of the SEB loans are backed by guarantees by the state governments. However, the fiscal health of several states is questionable so guarantees may prove inadequate in the event of a crisis.

Deficits: In many states, industries are facing up to 50 per cent percent power cuts. (CEA Monthly Highlights of Power Sector- July2012) and demand supply gap is close to 9per cent. The peak demand and supply gap today stands around 10 per cent and is expected to increase in the next few years. These issues need to be addressed by focusing on improving the loss situation in the country as primary focus and capacity building as second focus area. Demand side management and focus on renewable energy and microgrid are possible solution; however, this needs larger thrust from policy makers. Solar PV panels with remote, off-grid microgrids will drive rapid growth of distributed renewable energy (DRE) in rural and remote areas greater numbers of communities, agricultural areas small businesses, hospitals, schools & colleges etc. Thus, one can have access to cleaner, more reliable, and more efficient energy generation and the potential to empower millions to improve their lives and living conditions. Growing adoption and spread of DRE technology and smart microgrids might eliminate diesel generation and also help in bridging the gaps. According to a forecast from Pike Research, solar is now cheaper than diesel in India and a primary driver for remote Microgrids over the next years will be the integration of solar PV, a technology that will help reduce fossil fuel consumption to some extent, though our dependencies cannot be ruled out.

IET DiscomManpower: Availability of competent engineering and skilled resources is a major area of concern in India, particularly considering the 200 GW of new power generation capacity envisaged in the next ten years. To cope up with this demand and further looking at employability of engineers and technicians that is as low as 30 per cent yet, another issue in terms of availability of competent resources adds to the issues in power sector growth. Certain competences like certified project managers are not available in abundance to meet the demands. This is directly affecting the project execution and thereby cost overrun. If one takes of survey of 10 projects and try to pick up the project execution status of various projects in the country, I am sure more than 75 per cent of projects are delayed and more than 50 per cent of them are delayed on account of skill shortage it applies to private as well as government projects, worst in the government sponsored projects.

A project professional must have qualifications and competency framework to execute projects and programs like any other profession. Out of the approximately 39,000 Certified Project Managers (CPM) globally, 43 per cent are in China (about 17,000). In India we have only 96 out of 39,000 CPMs. China has recognized the need of qualifications and competency amongst their project professionals. India needs to address this as well.

Prakash Nayak is Chairman-Power Panel, Institution of Engineering and Technology, and also Director-Microgrid, India Smart Grid Forum
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